Evaluation of State Finances of Manipur

Transcription

1 1 Evaluation of State Finances of Manipur 1. Prof. E.Bijoykumar Singh, Principal Author, Economics department, Manipur University 2. Dr Damodar Nepram, Associate professor, Economics department, Manipur University 3. K. Jibankumar Singh, Deputy Finance Officer, Manipur University; 4. Irengbam James Bond Mangang, MBA, Research Assistant 2013

2 2 Acknowledgement North eastern states are notorious for the quality of economic data and Manipur is no exception. The quality of data is poor because there is practically a very few decisions taken on the basis of our data. Few decisions are taken using the data because it is considered to be poor. This vicious cycle has to be broken. We are grateful to the XIV finance Commission for giving us the opportunity for examining the state of finance of Manipur.We have used the data provided by RBI in its various issues of State Finance. We are grateful to the officers of our finance department, power department and Comptroller general of India for giving us access to their data. The study is for a limited period and this gave us the opportunity for examining the data over a much longer period. The insights provided by the study in its preparation will not be lost.

3 3 CONTENTS Chapter 1: Fiscal Reforms Chapter 2: Manipur Government and FRBMA Chapter 3: Contingent Liabilities of Manipur Chapter 4: Public Debt of Manipur Chapter 5: Financing the Fiscal deficit Chapter 6: Resource mobilisation in power sector Chapter 7: Resource Mobilisation & Expenditure management Chapter 8: State level Public enterprises Chapter 9: Subsidy Chapter 10: The way ahead

4 4 Chapter I: Fiscal Reforms Fiscal reforms include the reform measures the state government had taken up during the period under study to mobilise resources and rationalise expenditure. The objective is to make our expenditure more sustainable and also more efficient. That will be reflected inter alia in what we have done regarding taxes, user charges, revenue deficit and subsidies both explicit and implicit. It will also cover the reforms in the power sector and state level public sector units (SLPSU). The state government submitted a Medium Term Fiscal restructuring policy (MTFRP) to GOI in compliance to the recommendation of XI Finance Commission. An MOU was signed between the GOI and Manipur on June 20,2002. The main objectives of the MOU were to i. Compress revenue expenditure ii. Enhance revenue and no debt capital receipts to control debt levels iii. Increase overall transparency and efficiency in governance The measures taken up for revenue expenditure compression were Abolition of posts ( regular and workcharged) To maintain a comprehensive nominal roll of state government employee/employees of government owned or funded organisations To evolve an appropriate voluntary retirement scheme for government employees No fresh grant-in-aid commitment to any institution Legislative cap on the amount of guarantee to be provided by the state government for loans to be taken by other entities sponsored by state government and exclude totally the private sector from being extended guarantee on their borrowing The revenue receipt enhancement measures are Revision of taxes and user charges

5 5 Explore possibility of lifting prohibition A cap on announcing new tax concessions The government revised the rate of land revenue, hill house tax and drinking water supply during FRBM Act 2005 The state government enacted, as per recommendation of XII Finance Commission, the Manipur FRBM Act in August 2005 to ensure prudence in fiscal management and fiscal stability by achieving sufficient revenue surplus, reduction in fiscal deficit, prudent debt management consistent with fiscal sustainability, greater transparency in fiscal operations of the government. The following fiscal targets were adopted i. Strive to remain revenue surplus by making a balance in revenue receipts and expenditure and build up further surplus. ii. Strive to bring down fiscal deficit to 3% of Gross state domestic product. iii. Limit the amount of outstanding government guarantees as per the provisions of the Manipur ceiling on State government Guarantee Act, It is not to exceed thrice the state s own tax revenue receipts of the second preceding year. iv. Follow a recruitment and wage policy, in a manner such that the total salary bill relative to revenue expenditure excluding interest payments and pensions does not exceed 35%. As per the amendments in January and July 2006 the following fiscal targets were set Remain revenue surplus and build up further surplus having regard to the norms of central assistance for the state plan and the tax and non tax revenue potential of the state Reduce the fiscal deficit by a minimum of 1% of the GSDP by the end of each financial year, beginning with the financial year so as to reduce it to 3% or below by provided that, in the event of shortfall in the reduction of revenue and fiscal deficit as envisaged, the target of reduction of deficit in the

6 6 succeeding year shall stand enhanced by the amount of shortfall in the preceding year. The amendments in July 2010 and October 2011 reset the following targets Reduce the fiscal deficit to a maximum of 3.5% of the GSDP by and maintain it below 3.5% in succeeding financial years up to and thereafter reduce it to maximum of 3% of the GSDP from and beyond. Maintain outstanding debt to a maximum of 65.80% of GSDP in , 62.9% of GSDP in ,60.1% of GSDP in , 57% of GSDP in and 54.30% of GSDP in The state adopted the new restructured defined contribution pension scheme of the GOI mutatis mutandis in respect of new entrants to the state s service with effect from Jan.1,2005. This would mitigate the impact of rising pension liabilities in future. Manipur Value Added Tax (Manipur Act No.6 of 2005) was adopted in Dec It had five rates: 0%.1%.4%.12.5% and 20 %.The last slab is applicable on motor spirit (including turbine fuel, aviation spirit and aviation gasoline), liquor, petrol and lottery ticket. Minor modifications were introduced in June 2006, March 2008, June 2008, September 2009, February 2010, September 2010 and July The partial exemption of the Manipur VAT on the enhanced portion of ex-delivery prices of petrol, diesel and domestic LPG to the authorised oil companies /dealers was withdrawn in Feb. 2010(w.e.f. March 1,2010). The gross turnover of a dealer who shall get his accounts audited by an accountant shall be above Rs 60,00,000. In the case of works contract dealer it should be Rs 2,00,00,000 ( two crore).the Manipur VAT ( 1 st amendment) Act 2012 became operational from 1 st September The Manipur Motor vehicles Taxation Act 1998(Manipur Act no.3 of 1998) was amended as the Manipur Motor vehicles Taxation (Amendment) Act 2011(Manipur Act no.5 of 2011).

7 7 The government has made considerable progress in corporatisation of the power department. In July 2012 SBICAPS was engaged to provide advisory service as how to unbundle and restructure the electricity department of Manipur. Based on the recommendation of SBICAPS there was a cabinet decision on 14 Feb.2013 to go ahead with unbundling the department into two companies; 100% government owned Manipur sate power Company Ltd(MSPCL) for transmission and generational activities and Manipur State Power Distribution Company Ltd (MSPDCL) a subsidiary of MSPCL for managing distribution functions. Though the employees of the department resist this move, it is going to stay in the power sector a joint regulatory commission started functioning since January During September 2002 and March 2011 the average tariff remained unchanged. However with the functioning of the commission filing of tariff applications and approval of the tariff schedule by the Commission for every year has become mandatory. These sum up the measures taken in the last ten years. Though, as the subsequent chapters show, these are not adequate, a small state has to operate with its own peculiar constraints. It would be unfair to examine these using the same standard of more advanced states. The optimal level of self financing by a small state is an open question. While there is no dispute as to the need for internal resource mobilisation through various fiscal measures, how adequate is the level of mobilisation is still a question. An equally,if not more,important issue is the efficiency of expenditure. Under a highly inefficient system more resources would be required for achieving the same thing that could have been achieved with a much smaller amount in a more efficient system. The inefficiency of the institutions involved in the delivery of services also is an area needing intervention.

8 8 Chapter 2: Manipur Government and FRBM Act The Government of Manipur implemented the Fifth Pay Commission recommendations in the year 1999 with effect from 1996 which put a severe strain on its finances. The revenue expenditure increased from Rs. 789 crores in to Rs.1357 crores in while the revenue receipts rose from Rs. 897 crores to Rs crores only during the period (Table 1). The rise in expenditure without a corresponding increase in revenues led to a deterioration in revenue account position resulting in the emergence of deficit of Rs crores in The state was spending more than its revenues and it was surviving on short term borrowings from the Reserve Bank of India which is the central bank of the country. It was even reported that the RBI denied withdrawals for as many as 329 days in as the state had no money (GOM 2002). The state was desperate for central bailout and it signed an MOU in 1999 for implementing a number of austerity measures in return for central assistance to tide over the problem. A second MOU was signed in the year 2002 for the implementation of a medium term fiscal reform programme (MTFRP) as was suggested by the Eleventh Finance Commission (EFC). The state specific reform plan was drawn by the centre in consultation with the state government with the aim of reducing revenue deficit. An incentive fund was also provided the release of which was to be based on progress made in the reforms. The state government introduced a number of austerity measures majority of which was aimed at curtailing expenditure. Some of these measures are: 1. Wage restraint 2. Non-hiring of new employees except in priority areas 3. Closure of sick or loss making public sector enterprises 4. Revision of user charges of public utilities The measures did have an effect in curtailing the growth of expenditure on salary. Committed expenditure of the state consisting of expenditure on salary, pension and interest which was 90 percent of the total revenue expenditure in declined to 56

9 9 percent in while expenditure only on salary declined from 87 percent of revenue expenditure net of payment on interest and pension to 43 percent during the same period. The revenue account position also witnessed an improvement from adeficit of Rs. 287 crores in to a surplus of Rs. 92 crores in the year Since then the state has maintained a healthy revenue account position. But the improvement in state finances must also be credited to a larger dose of central transfers. This is evident from Table 1 where there has been a sizeable increase in central grants from the year onwards. This enabled the state to fulfil the criterion laid down by the EFC which is reduction of the revenue deficit. As a result, the state was able to get the full amount of incentive money amounting to Rs crores set aside. Fig.2.1: Revenue receipts and expenditure of Manipur (Rs.cr) Revenue receipts Revenue expenditure The Twelfth Finance Commission ( ) recommended a major debt relief program for the states. A large portion of central government debts was to be written off on the condition of the enactment of fiscal responsibility legislation (FRL) known as FRBMA (Fiscal Responsibility and Budget Management Act) by the respective state governments. The FRL was state specific but the basic framework was provided by the central government. The Government of Manipur (2005) enacted the FRBMA in the year 2005 and mentioned that the state shall try to achieve the following goals: 1. Generation of revenue surplus. 2. Fiscal deficit to be reduced to 3 percent of the gross state domestic product. 3. Limit the amount of outstanding government guarantee.

10 10 4. To bring down the total salary so that it does not exceed 35 percent of revenue expenditure excluding interest payments and pension. As per the amendments in January and July 2006 the following fiscal targets were set Remain revenue surplus and build up further surplus having regard to the norms of central assistance for the state plan and the tax and non tax revenue potential of the state Reduce the fiscal deficit by a minimum of 1% of the GSDP by the end of each financial year, beginning with the financial year so as to reduce it to 3% or below by provided that, in the event of shortfall in the reduction of revenue and fiscal deficit as envisaged, the target of reduction of deficit in the succeeding year shall stand enhanced by the amount of shortfall in the preceding year. The amendments in July 2010 and October 2011 reset the following targets Reduce the fiscal deficit to a maximum of 3.5% of the GSDP by and maintain it below 3.5% in succeeding financial years up to and thereafter reduce it to maximum of 3% of the GSDP from and beyond. Maintain outstanding debt to a maximum of 65.80% of GSDP in , 62.9% of GSDP in ,60.1% of GSDP in , 57% of GSDP in and 54.30% of GSDP in

11 11 Table2. 1. Fiscal profile of Manipur (Rs.cr) Own tax receipts Central tax share Own non-tax receipts Central grants Revenue receipts Contribution of own tax and non tax receipts to revenue receipts Salary expenditure Pension Interest Others Revenue expenditure Revenue deficit GFD (p.c. of the GSDP) Rev.exp.net of interest & pension Committed expenditure Salary/rev. exp. net of interest and pension GSDP Gross fiscal deficit (GFD) Note: Salary data of is revised estimates. Minus revenue deficit indicates revenue surplus. GSDP data is current price converted to series Source: RBI (2010) Handbook of statistics on state finances. RBI: State finances: A study of budgets (various issues) GOM(2002): White paper on Manipur State Finances (for salary data up to ) GOI Finance Accounts, GOM (various issues for salary data to )

12 12 The 12 th FC recommended that revenue deficits should be eliminated by the year Whether the government has been able to fulfill the FRBMA targets or not can be examined from Table2. 1 and the findings are given below: 1. As mentioned earlier, the state was able to generate revenue surplus by the year Thus, generation of revenue surplus has been achieved before the enactment of FRBMA. 2. It was able to reduce the gross fiscal deficit to 3 percent by the year However, it witnessed deterioration since then. 3. The state failed to reduce salary expenditure to 35 percent of revenue expenditure net of interest payments and pensions. The state witnessed deterioration in the fiscal situation in which was due to a decline in central grants which has been a major source of revenue for the state government. Further, from the year onwards, the state implemented the recommendations of the Sixth Pay Commission which led to a rise in salary expenditure of the state from Rs crores in to Rs crores in Salary expenditure increased by as much as Rs. 537 crores in over the previous year figure while pension expenditure rose by Rs. 107 crores. In sharp contrast, the state had witnessed increase in salary expenditure by only Rs. 46 crores in over the previous year figure and by only Rs. 26 crores in pension expenditure. The problem faced by the state in the wake of the Sixth Pay Commission recommendations was not confined to it alone. The states in the country in general witnessed a surge in their expenditure which had a serious dent in their effort to achieve the FRBMA goals. Taking into consideration of this problem, the Thirteenth Finance Commission recommended a new fiscal correction path for the states which is given below: 1. As far as reduction of revenue deficit is concerned, it is mentioned that states having revenue deficit in should eliminate it by Other states having surplus or zero revenue deficits in should eliminate revenue deficit by For the reduction of fiscal deficit, different targets are set for general category states (GCS) and special category states (SCS). The GCS which achieved revenue balance or surplus by should reduce their fiscal deficit to 3 percent by For other GCS, they should achieve the target by

13 13 3. For special category states (SCS), it is mentioned that they receive large central transfers and hence continue to enjoy revenue surplus. This made recommendations for reducing revenue deficit unnecessary for them. 4. The yardstick for the fiscal adjustment path of the SCS for the various parameters is the average of the three years to The fiscal correction path of six SCS is given in Table 2. Manipur, Nagaland, Sikkim and Uttarakhand had fiscal deficit of over 3 percent but less than 6 percent of the GSDP. It is recommended that they should bring their fiscal deficit to 3 percent by Jammu & Kashmir and Mizoram had higher fiscal deficit and they were to bring down their FD level by Table2. 2: Fiscal deficit (FD) path for Special Category States (per cent of GSDP) State base Manipur Nagaland Sikkim Uttarakhand Jammu & Kashmir Mizoram Source: Thirteenth Finance Commission Report (p.139) The phenomenal rise in salary and pension expenditure of the state in the wake of the new pay commission recommendations could have had an even more disastrous impact on state finances if not for the larger dose of central transfers from the new Finance Commission recommendations. But the state had wanted more. The problem for the state is that while central transfers witnessed some increase in the year , revenue expenditure increased by Rs. 928 crores reducing the revenue surplus by the state from Rs.1351 in to Rs. 646 crores in It seems that the recommendations for gap filling were made with the assumption that the states had implemented the new pay commission recommendations. However, the Government of Manipur implemented the pay revision only in the year The Finance Commission did make a vital mistake in overlooking it. It penalizes a state like Manipur which postponed the pay hike for its employees. This has made impossible for the state to achieve the FRBMA targets.

14 14 Chapter 3: Contingent Liabilities of Manipur The state owned public sector enterprises and quasi government organisations borrow money from various sources on the guarantee of the state government. It is the duty of the state government to repay loans when the concerned entities fail to repay them. Such loans are contingent liabilities i.e. liabilities contingent upon their failure to pay back loans. However, as most of the PSUs are incurring perennial losses and their liabilities have become liabilities of the state. This is one of the problems of the states as that they have not only to provide not only subsidy for these enterprises but also repay contingent liabilities which in course of time has become a serious problem for many states. The Eleventh Finance Commission (2010:107) expressed similar concern on the rise of contingent liabilities and said there has been considerable growth of contingent liabilities arising out of guarantees given by the state governments from time to time. Guarantees are not immediate liabilities, but liabilities contingent on default by the borrower for whom the guarantee has been extended Since many State level public enterprises are running in losses, the risk of default is high. It further continued We feel that there is a need to fix limit on the giving of such guarantees by enacting suitable legislation and such limit should form part of the overall limits of borrowing under articles 292 and 293. The Twelfth Finance Commission (2004:235) said that it is also better to provide a fund - a sinking fund out of which government can repay such liabilities. If this is done, the burden to the government will be very much reduced. In order to provide for sudden discharge of the states obligations on guarantees, we further recommend that states should set up guarantee redemption funds through earmarked guarantee fees. This should be preceded by risk weighting of guarantees. The quantum of contribution to the fund should be decided accordingly. In this way, a two prong strategy was provided, one to limit guarantees of the state and the other to create a sinking fund to repay such liabilities.

15 15 The GOM passed the Manipur Ceiling on Government Guarantees Act, 2004 which inter alia states. The total amount of outstanding government guarantees on the first day of April of any year shall not exceed thrice the State s Own Tax Revenue receipts of the second preceding year of such year as they stood in the books of the Accountant General of Manipur. This particular content of the Act was also endorsed by the FRBM Act which was subsequently passed in Further the government has created a fund to repay such liabilities. As far as the outstanding amount of guarantees is concerned, it was very small and negligible initially. It was just Rs. 9 crores in However, it jumped to Rs. 209 crores in and further to Rs. 251 crores in The mount of such liabilities can be measured in terms of percentage of revenue receipts and in terms of percentage of the limit allowed by the Manipur Ceiling on Government Guarantees Act, 2004 which is thrice the amount of own tax receipts in the last second preceding year. Since then the amount both as a percentage of revenue receipts as well as the FRBM limit has gone down despite a surge in the year Thus, it can be concluded that the contingent liabilities are well within the limits prescribed. Fig.3.1: Contingent liabilities of Manipur % of revenue receipts % of FRBM limit

16 16 Table 3.1: Contingent liabilities of Manipur Maximum amount guaranteed in the year Outstanding amount of guarantees FRBM limit % of FRBM limit (Rs. cr) (% of revenue (Rs. cr) (% of revenue (Rs. cr) receipts) receipts) Note: FRBM limit is thrice the state s own tax revenue receipts of the second preceding year. Percentage of FRBM limit refers to outstanding amount of guarantee as a percentage of FRBM limit. Source: GOI: Report of the Comptroller and Auditor General of India: Government of Manipur (various issues). The outstanding amount of guarantees given in Table 3.1 seems to be the principal amount only. As seen from Table 3.2, the outstanding interest liability seems to be more than the principle amount. The total outstanding principle and interest together stood at Rs crores in as against outstanding principle of Rs crores only. The total outstanding amount is still much lower than the maximum amount provided under the Manipur Ceiling on Government Guarantees Act, Considering the fact that the existing guarantees are for promotion of Khadi & Village industries, disbursal of housing loans, etc., the state should continue to give guarantees to these institutions. However, following the principle of financial prudence and discipline, the existing institutions should be encouraged to repay loans. Repayment of loans of any kind has been a serious issue, the outcome of weak administration and ignorance. Most of the loanees cannot differentiate loans from grants. The growing margin should encourage the state government to take up and sponsor new innovative schemes.

17 17 Table3. 2: Outstanding guaranties of institutions (Rs. crores) Maximum amount guaranteed during the year Sum guaranteed outstanding as on 31 st March 2012 Principal Interest Manipur State Apex long term Co-operative Housing Society Limited Housing and Urban Development Cooperation, New Delhi Manipur State Cooperative Bank Ltd Planning and Development Authority Manipur Plantation Crops Corporation Ltd Manipur Tribal Development Corporation Khadi& Village Industries Grand total Source: GOI: Finance Accounts , GOM (pp.52-53) Further, the sinking fund created for debt redemption of such liabilities seem to be very less considering the mounting liabilities. For example the amount transferred to this fund in the year 2012 was only Rs crores where the outstanding amount inclusive of interest was Rs crores. As the gap between the guarantee fund and the outstanding liability is high, it is of utmost importance that the state raises the fund to around Rs. 200 crores very shortly. It can contribute a small amount annually once there is enough funds to service such debt. Table 3.3: Guarantee redemption fund (Rs. crores) 1. Opening balance Amount transferred to the fund Total guarantee fund Amount met from the fund for the discharge of invoke guarantees nil 5. Closing balance Amount of investment made out of the guarantee redemption fund Source: GOI: Finance Accounts , GOM (pp.52-53)

18 18 Two important conclusions drawn from the study are: 1. The state should continue to give guarantees considering their social and economic implications in the state. But they should be encouraged to generate surpluses as far as possible and repay loans on their own. 2. The amount contributed to the sinking fund to service these debts is small and hence should be enhanced. A fund of around Rs. 200 crores should be created in the near future after which the amount contributed to it can be reduced. The state will then be ablet to service these debts with ease.

19 19 Chapter 4: Public Debt of Manipur A developing economy requires large amount of money for development purposes but often the fund is found to be insufficient and lacking. Their tax and non tax revenues have not been enough for meeting both development and non development expenditures. In such situations, one way of raising money is by borrowing. The Eighth Finance Commission (1984:100) even accepted this fact and said We see nothing basically wrong in the growth of public debt. With the expanding functions, no government, particularly in developing economy, can undertake large scale programmes of development without recourse to borrowing. But it is very important to use public debt in a productive manner as they have to be repaid along with interest. But the states often due to political and other reasons have expanded much beyond their means.. Often there have been diversions of borrowed money for financing non productive expenditures. In order to introduce an inbuilt mechanism for controlling public debt, the Twelfth Finance Commission had recommended the introduction of fiscal responsibility legislation (FRL) in the states. The FRBMA of Manipur says that the state will maintain a gross fiscal deficit of 3 percent of the GSDP. With this it is hoped that the states debt would be sustainable. Composition of public debt In India the state governments borrow money from various sources. As per the classification given in the Finance Accounts published by the CAG, Government of India, public debt can be divided into three groups: 1. Internal debt - Market loans - Loans from banks and other institutions - Ways and means advances from the RBI 2. Loans from the centre 3. Provident funds, etc.

20 Internal debt comprise of loans raised from the market, loans taken from banks and corporations like the LIC, NABARD, etc. and short term loans from the RBI. Central loans include loans taken from the centre for state plan schemes, centrally sponsored schemes, etc. Provident funds, etc. include state provident funds, small savings, etc. The outstanding loans (as on 31 st March) of the state has slowly risen from Rs crores in 1996 to Rs crores in 2012 (Fig.1). Fig.4.1: Outstanding debt of Manipur (Rs.cr) As far as the composition of the loans is concerned, the importance of central loans has gone down while internal debt and provident funds, etc. have gone up over the years. As on 31 st March 1990, central loans were nearly 50 percent of the total outstanding debt but witnessed a gradual decline over the years. However, it again saw a rise to as much as 52 percent at the end of Since then it has gone down tremendously and stood at 9 percent at the end of One important reason for this was the availability of cheaper loans in the market. The Twelfth Finance Commission (2004:231) suggested the states to take advantage of this and said We feel that it would appropriate for states to take advantage of the market rates and avoid the spread charged by the centre. We, therefore, recommend that in future, the central government should not act as an intermediary and allow the states to approach the market directly. If, however, some fiscally week states are unable to raise funds from the market, the centre could resort to lending, but the interest rates should remain aligned to the marginal cost or borrowing of the states. Thus, from the year onwards the central government has

21 21 started giving the states only the grant component of the central assistance for state plan schemes. It is expected that the loans from the centre will continue to fall while internal loans are expected to rise. Table 4.1: Composition of outstanding loans of Manipur (Percentage) (As on 31 st March) Year Internal debt Central loans Provident funds, etc Source: GOI, Finance Accounts, GOM (various issues) Table 4.2: Details of outstanding loans (Rs.cr) Internal loans Market loan Loans from the LIC Loans from the NABARD Ways & Means loans from the RBI Others Internal debt total Central loans Non-plan loans Loans for state plan schemes Loans for centrally sponsored schemes Loans for NEC schemes Others Central loans total

22 22 Provident funds, etc. State provident funds Insurance and Pension fund Investment in small savings Provident funds, etc. total Grand total Note: Provident funds, etc. shown here does not include reserve funds and deposits Source: GOI, Finance Accounts GOM (various issues) Fig.4. 2: Debt GSDP ratio (percentage) Assessment of State Government Debt: It is not possible for the state to generate own funds to repay loans as evident from the fact that outstanding loans comprise about 60 percent of the GSDP in But this does not mean the state would be in financial trouble as much of her funds come from the centre.accumulation of debt reflects the outcome of state government s fiscal operations on the revenue and expenditure sides of the budgets. If expenditure, whether committed or discretionary, exceeds revenues tax and non-tax the excess can only be financed through fresh borrowings. If the mismatch in the growth of revenues and expenditure is of a temporary nature, borrowing provides a mechanism by which the gap between the two is

23 23 bridged. However, if the mismatch persists over a long period and grows in volume, with the increase in revenue receipts turning out to be inadequate to cover the interest liabilities that are required to service the debt, it leads to growing revenue and fiscal deficits. This, in turn, results in unsustainable debt. The sustainable level of fiscal deficits can be derived with reference to three key parameters: growth rate, ratio of revenue receipts to GDP/GSDP and the interest rate on borrowings. The existing level of debt-gdp ratio is also quite material in the context of fiscal sustainability. Fiscal sustainability requires that a rise in fiscal deficit is matched by a rise in the capacity to service the increased debt. Borrowing channels for a state are many, with most of these channels being controlled by the centre. Market borrowings, the most important of these channels, are controlled by the centre and managed by the Reserve Bank. States may not, without the consent of the central government, raise any loan if they are indebted to the central government (Article 293). The Reserve Bank manages the domestic borrowings of 28 states through separate agreements with each of them. Cost minimisation with minimum roll over risk remains a key objective in the management of states market borrowings. The state governments issue dated securities, termed state development loans (SDLs), of varying tenors. As a debt manager of the states, the Reserve Bank initially underwrote states borrowings, but with financial market development, banks and financial institutions have been subscribing directly to these securities floated through a process managed by the Reserve Bank. The method of issuance of market loans has, however, migrated from the administratively controlled system to an auction based system for all the states since There is no internationally established threshold for assessing the sustainability of SNG debt. Debt sustainability is defined as a level of indebtedness that does not generate payment difficulties and therefore is linked to the ability of the government to service its debt. It is monitored in terms of credit worthiness (solvency) indicators (nominal debt stock/ own current revenue ratio, present value of debt service/own current revenue ratio);and liquidity indicators (debt service/current revenue ratio and interest payment/current revenue ratio). These indicators broadly enable an assessment of the ability of SNGs to service interest payments and repay debt as and when it becomes due through current and regular sources of revenues. Fiscal and debt sustainability are inter-related; the latter has assumed significance with the adoption of debt rules as part of a fiscal rules framework. Apart from examining debt

24 24 sustainability in a static framework, empirical studies have also analysed this issue taking into account the uncertainties about medium-term projections of economic growth, primary balance, cost of public sector borrowings and existence of implicit guarantees, and fiscal reaction functions incorporating dynamic properties of fiscal policymaking. In the Indian context, the debt situation of state governments has transited from a phase of unsustainable debt levels and increasing interest burden to a phase of fiscal consolidation and moderation in debt levels. The improvement in terms of sustainability indicators in the fiscal consolidation phase reflects the adherence to fiscal rules, including a phased reduction in debt levels, even though it was also backed by policy measures viz., debt restructuring/ consolidation and relief measures. Indicators of debt sustainability are as follows: 1. Rate of nominal growth of GSDP (Y) should be more than rate of growth of debt(d). 2. Real output growth (y) should be higher than real interest rate(r). 3. interest burden defined by interest payments (INT) to GSDP ratio should decline over time INT/GSDP 4. Interest payments as a proportion of revenue expenditure should decline over time INT/RE 5. Interest payments as a proportion of revenue receipts(rr) should fall over time INT/RR The sustainability of Manipur s debt would be examined using the pattern anticipated of these indicators: Table 4.3: Nominal GSDP growth vs Debt growth Y D In the initial sub-periods the growth rate of nominal GSDP was less than that of debt. It was reversed in the later period.

25 25 Fig 4.3: Growth rate of nominal GSDP and debt Y D 5 0 Real output growth rate has been higher than real interest rate for most of the period. Real interest rate is calculated as average interest rate (on outstanding debt) minus difference between nominal growth of GSDP and real output growth ( at prices). Fig 4.4: Real output growth rate and real interest rate

26 percent Real output growth rate vs real interest rate r y INT/GSDP, INT/RR and INT/RE show a declining trend throughout. These indicators show that though in the beginning they indicated unsustainability, it gradually improved subsequently.there seems to have been an improvement in the sustainability of debt Fig 4.5: Interest burden INT/RE INT/RR INT/GSDP 0 Thus though the debt to GSDP ratio has been high it is not unsustainable.

27 27 Chapter 5: Financing the Fiscal deficit The FRBM Act made it obligatory on the part of the state government to consolidate state finance by reducing gross fiscal deficit to 3% of GSDP and revenue deficit to 0% of GSDP in a time bound manner. In this section we shall examine how the growing fiscal deficit is financed. Equally important is the factors leading to this growth. The overall impact of fiscal deficit would depend on its source and how it is financed. The following table shows the pattern of gross fiscal deficit, revenue deficit and primary deficit. As the following table shows the state seems to have come a full circle in the case of fiscal deficit. In , GFD as the percentage of GSDP was and after declining and even becoming surplus in it started rising to reach in The state entered the decade with substantial revenue deficit and became a revenue surplus by The surplus as percentage of GSDP peaked at 17.93% in However by the surplus both absolutely and as percent of GSDP declined substantially. Table 5.1: Deficit indicators Year G.F.D. Primary Def Rev.Def GSDP GFD as % of GSDP Rev Def as % of GSDP Note: GFD, GSDP, Rev Def and Primary Def. are in Rs crore.

28 28 Fig 5.1: Gross fiscal deficit as percent of GSDP 12 GFD/GSDP(%) GFD/GSDP(%) Deficits can be assessed in terms of its causes and the manner in which it is financed. Quality of Deficit/Surplus Primary revenue expenditure is total revenue expenditure net of interest payment. The decomposition of primary deficit into primary revenue deficit/surplus and capital expenditure (including loans and advances) would indicate the quality of deficit. If enhancement of capital expenditure is the main cause of deficit, it is desirable because it improves the productive capacity of the state s economy. The populist measures undertaken by the government necessitated by coalition politics has been a major source of rapid growth of revenue deficit. The non debt receipts of Manipur during to were sufficient to meet the primary revenue expenditure. The proportion of capital expenditure went on rising.

29 29 Table 5.2: Quality of Deficit/Surplus Year Non debt receipts primary rev. exp capital exp Loans & advances primary expenditure primary rev def (-) /surp (+) primary def (-) /surp(+) (3+4+5) 7(2-3) 8(2-6) Note: in Rs. crore Fig 5.3: Quality of Deficit/Surplus non debt receipts primary rev. exp capital exp How is the deficit financed? While there seems to be a consensus on the need for fiscal deficit in the near future for meeting capital expenses, what matters is how it is

30 30 financed. Unlike the central government, printing money is not an option for state governments. If deficits are financed with borrowing, the cost of servicing the interest and repayment needs of the loan matters. A high cost loan will push the state to debt trap faster where it borrows to service the debt only. Earlier Finance Commissions proposed flexibility for swapping high cost central government debts with low cost market debts. Manipur has managed to remain revenue surplus yet its fiscal deficit has been rising. It is quite different from running into fiscal deficit to finance revenue deficit in the early part of this decade. Loans from the centre used to be the most important source of state government borrowing. Central plan assistance also would come with a loan component.table 5.3 shows that the importance of loan from GOI has been declining over the years in line with the all India trend. The debt swap facilities also have enabled the state to swap the costlier GOI debt with cheaper market loans. Interestingly the importance of market borrowings also has been declining since when it reached Rs 445 crore. The importance of small savings, PF on the other hand has been increasing and it has become the most important component of deficit financing in This is in sharp contrast with the all India trend where the share of market borrowings has been rising and share of small savings has been falling. Manipur continues to avail of 100% share in NSSF collections. Among the states in NER only Mizoram and Tripura have reduced the mandatory allocation of net small savings collection to 50% from the fiscal year as per the recommendations of the Committee on Comprehensive review of national Small savings Fund. Small savings collection has been increasing and the state has to absorb the share of small savings collection earmarked to it irrespective of the relatively higher cost of borrowing. This has to some extent diluted the purpose of debt swap facility which enabled state governments to swap loans from central government with market loans carrying much lower interest rate..

31 31 Table5.3: Financing the deficit Financing of Gross Fiscal deficit ( in Rs Crore) Year Market Borrowing Special securities issued to NSSF Loans from financial institutions Source : Reports on State Finance,RBI Ways& Means Adv RBI Loans from GOI Small savings PF etc Deposits& advances Suspense and Misc Remittances Reserve fund Increase(+) decrease(-) in cash balance others overall surplus (-)/def(+) Gfsurplus(-) Gfdeficit(+)

32 32 Chapter 6: Resource Mobilisation in Power Sector Electricity is in the concurrent list in the constitution. The primary responsibility of structuring its availability and distribution is that of the state. Electricity department was separated from PWD, Govt. of Manipur in Feb Manipur has been perennially short of power.the established potential is 2000 MW of hydro power. There is no proven reserve of coal or gas. The installed capacity is 105 MW in Loktak Hydroelectric project (commissioned on Aug.4,1984). Till 1980 the demand for electricity remained suppressed and the scenario changed with the beginning of bulk purchase of power from Assam in December 1981 when the 132/33 kv substation was commissioned at Yurembam. A 6x6 MW heavy fuel based power project at Leimakhong was commissioned on 5 th Oct It is in standby mode. The cost of generation from this unit is extremely high. The power supply in Manipur depends entirely on the share of power allocated from central sector power plants like Loktakhydro electric project, Kopili -Khandong HE project, Assam gas based power project at Kathalguri and Agartala gas turbine power project at Ramchandranagar, eastern regional electricity board, Meghalaya state electricity board, Ranganadi HE project and Doyeng HE project. During 1984 to 1996 a number of central sector power projects were commissioned in the north eastern region. Every project has a share of about 7% for Manipur. It has adequate quantity of power during the rainy seasons. It is different in the dry lean seasons. However Manipur has been experiencing an inordinately high transmission & distribution loss. The electricity act 2003 addresses some of the core issues that affect this sector. The pathetic state of financé of electricity department also affected the progress in expansion of power supply and introduction of market reforms.

33 33 Table 6.1: Per Capita energy consumption (KWh) Annual growth rate The per capita consumption of power gradually rose from 114kwh in to 158 kwh in Table 6.2: Growth of consumers No. of consumers percentage growth (Dec.2010) The number of consumers also rose from in to in

34 34 Table 6.3: Categories of consumers Categories of Consumers Domestic Commercial Industries 2193 Irrigation/Agri 61 public water work 137 Public lighting 740 Bulk supplies & others 537 Total Aggregate technical and non technical or commercial (AT&C) loss is a measure of loss. It is the actual measure of overall efficiency of the distribution business as it measures both technical and commercial loss. AT& C loss =[(Energy input-energy realized)]/ Energy input *100 The technical losses are non consumable whereas non technical losses are the unaccounted but consumed energy. The latter is also known as T&D loss. T&D loss is the difference between energy available at transmission and sub transmission system and energy sold. It is calculated as =1-(energy sold as percent of energy available at transmission and sub transmission system) It however does not capture the major gap between the billing and the collection of bills. Technical losses are inherent in a system and can be reduced to an optimum level. The level of T&D loss in the electricity department of Manipur in was 28.83% and AT&C loss was 54%. AT&C loss shows a downward trend.

35 35 Table 6.4: Loss Year AT& C loss percent MANIPUR The main reasons for the technical loss are overloading of existing lines and substations, absence of upgradation of old lines and equipments, low HT:LT ratio, poor repair and maintenance of equipments and non installation of capacitors for power factor correction. The heavy T&D loss was due to low metering status, low billing and collection efficiency, low accountability of employees and corruption, lack of energy audit and lack of feeder, transformer and sub station metering. What happens in the power sector matters for the overall fiscal health of the state. For example in the revenue deficit of power sector was Rs 71 crore. This reduced the level of revenue surplus in the state. Without the power sector the state would have had a much higher revenue surplus of Rs crore. In short the nature of revenue account balance would have been better with a performing power department. Table 6.5: Revenue account of power sector (Rs lakhs) Receipt Disbursement Rev deficit power

36 36 Though the Electricity Act 2003 has been in operation, its provisions have not been used judiciously to tackle the problems of this department. Reports after report of CAA&G confirm this laxity on the part of the department. Subsection 2 of section 56 of electricity Act, 2003 provides that no sum due from a consumer can be recovered after a lapse of 2 years from the date when such sum first became due unless it has been continuously shown as recoverable as arrears of electricity supplied. It also provides that the licensee (Generator Company) shall not cut off the supply of electricity in such cases. However this was blatantly flouted by the department who routinely cut off the power supply. The department failed to communicate the fact of arrears to the consumer and did not recover the outstanding amount within the prescribed period of 2 years of their becoming due. This led to a loss of Rs 5.50 crore in 2008 as the amount became irrecoverable. This was pointed out in CAAG report 2008.The outstanding dues owed to all the categories of consumers in the state as on 31/3/2013 Rs crore rising from Rs 72.5 crore in Under section 152(1) of the Electricity Act 2003, an offence committed by any consumer or person who committed or who is reasonably suspected of having committed an offence of theft of electricity punishable under the Act, can be compounded on realisation of compounding fee of Rs Though the officials disconnected the unauthorised connections, no case was initiated against the offenders. Where any consumer fails to pay dues for energy charges in respect of supply of energy to him, such charge shall be recovered by suit or on application to a magistrate having jurisdiction thereof, by distress and sale of any moveable property belonging to such consumer. In the event of a corporation being liquidated the assets of the corporation shall be divided among the central and state government and such other parties, if any, proportionately after meeting the liabilities of the corporation. Manipur State Road transport Corporation (MSRTC) had an arrear of Rs lakhs upto October, It was liquidated on November 1, However not only demand notices were issued in January 2004 and May 2006, the liquidated corporation continued to draw power as of November An additional arrear of Rs lakh for the period Nov to Nov came up.

37 37 The electicity act 2003 has been in force since 10 June As per provisions of the Act, two special courts (electricity) namely the special court (electricity), Manipur east and the special court (electricity), Manipur West were constituted on 28 June 2004 to deal with the theft of electricity, tempering of meters etc and speedy trial of the offences. However judges and public prosecutors of these courts were appointed on only. It enabled the department to undertake special drives for disconnection of un authorised/illegal connections and consumers with heavy outstanding dues in all the districts both in the valley and hills. Such instances show the laxity on the part of the department in implementing the provisions of the Act which led to loss of substantial revenue over the years. To reduce these losses the state power department has taken up the following measures i. Strengthening of transmission, sub transmission and distribution systems ii. Providing of 100% metering of feeders, distribution transformers and consumers iii. Providing of energy meters for ring fencing of 13 census towns iv. Detection and disconnection of unauthorised consumers v. Setting up of special courts and special police station for effective control of energy theft vi. Introduction of computer billing and revenue collection system vii. Introduction of pre payment meters. viii. More focus on revenue collection ix. Energy accounting and auditing at all voltage levels x. Area wise fixation of responsibility for revenue collection. There was a focused metering drive, provision of new electronic meters for consumers and outsourcing of meter reading and billing activities. There was a drive for detection of and disconnection of unauthorised consumers and spot collection of revenue. About one lakh electronic energy meters are being checked. The outstanding dues owed to different government departments have been collected at source. No dues certificate from electricity department has been made mandatory before issuing certificates etc. to general public by DC and for government employee at the time of preparing their pay bills. An incentive scheme for waiving 25% of the outstanding surcharge amount for the domestic consumers in case of one time clearance of their bills was launched to be effective from

38 38 Prepaid system has been successfully introduced in Paona Bazar and Thangal bazar in the heart of the city in 2012 leading to a quantum jump in revenue collection of this department. It is planned to cover more towns gradually. Under the power reform programme central funds can be made available to the state for acceleration of implementation of sub transmission works as 10% loan and 90% grant. For availing of the benefits the state government signed a memorandum of agreement with Ministry of power, GOI and RBI in Corporatisation of the electricity department is one of the conditions of the agreement. Since 1971 the power tariff has been revised ten times. In 1971 the average tariff rate for power was 36 paise / kwh. By 2002 it rose to Rs 3.15/kwh. The Tariff revision of raised the average tariff to Rs 3.15 per kwh, a 12.5% increase over the earlier average tariff rate.it remained unchanged till when the Joint regulatory Commission (Manipur & Mizoram) issued the first tariff order on it was further revised w.e.f Since the inception of the Commission, filing of tariff applications and approval of the tariff schedule by the commission for every year has become a mandatory exercise of the department and the commission. The following table shows the comparative tariff in Domestic light & power segment which dominates the consumer base of power. Table 6.6 : comparative tariff structure in domestic light & power segment Energy charge Fixed charge Energy charge (Rs/kwh) (Rs/kwh) first 100 units Rs Rs 60 Rs 2.40 kwh/month Next 100 units Rs Rs 60 Rs 3.00 kwh/month Above 200 units Rs 3.20 Above kwh/month Rs 60 Rs 3.60

39 39 The state govt. has contributed Rs crore as equity share in the North East Transmission company for construction of 400 KV D/C Pallatana-Silchar-Bongaigaon trunk transmission system from the Pallatana Gas power project and Bongaigaon Thermal Power Project. Under the power reforms programme joint electricity commission (Manipur& Mizoram) was set up with HQ at Aizawl on and the commission started functioning on 28 jan The state Advisory Committee also functions with members from different departments and organisations from different districts of the state Under the power reform programme Joint Electricity regulatory Commission (JERC) (Manipur and Mizoram) was set up with hq at Aizawl,Mizoram vide Government of India gazette (extra ordinary) notification no.23/3/2002,r&r dated The commission JERC started functioning w.e.f The state advisory committee under notification from the commission is also functional with members from different departments and organisations from different districts of the state. Since the inception of the JERC filing of tariff application and approval of the tariff schedule by the JERC for every year has become mandatory activity of the department. The first tariff order of the commission was issued on 15/3/2011 which became effective w.e.f. 21/3/2011. The second tariff order was issued on and effective w.e.f The government of Manipur appointed the Administrative Staff College of India(ASCI),Hyderabad on to provide consultancy services To assess the restructuring options for the power sector To recommend suitable regulatory system for the power sector For financial restructuring of the power sector For formulating an implementation programme Broad terms of reference for the ASCI were as follows: 1. Review of the present configuration of the state s power sector and assess its likely evolution over the next 20 years 2. Identify and define the restructuring options that GOM should consider to implement for power sector reform

40 40 3. Review the existing institutional and regulatory framework governing power sector in Manipur 4. Study the required changes in the existing legislations/laws 5. Assess the demand for power supply in Manipur for the next 20 years, capacity planning, investment needs, pricing of electricity and financial restructuring of the power sector. 6. Formulate and implementation programme defining priority measures and strategies to implement the reform process. The report was submitted in In July 2012 SBICAPS was engaged to provide advisory service as how to unbundle and restructure the electricity department of Manipur. Based on the recommendation of SBICAPS there was a cabinet decision on 14 feb.2013 to go ahead with unbundling the the department into two companies; 100% government owned Manipur sate power Company Ltd(MSPCL) for transmission and generational activities and Manipur State Power Distribution Company Ltd (MSPDCL) a subsidiary of MSPCL for managing distribution functions. Though the employees of the department resist this move, it is going to stay. Energy conservation Mass awareness programmes on energy conservation, like distribution of leaflets, display of wall posters and insertion of advertisement in newspapers on the dos and don ts while using electricity national energy conservation day 14 Dec the state government also issued notices on proper utilisation of electricity like replacement of incandescent lamps with compact fluorescent lamps (CFL) etc at the office complexes.a workshop on general awareness of energy conservation act 2001 and role of bureau of energy efficiency and state designated agencies and conservation of energy conservation day was held on 17 Dec Thus some important measures for rationalising the operation of the power sector have been introduced affecting both supply and demand side. Though cynics dismiss this like the experience of corporatizing Manipur State Road Transport Corporation, it is like an idea whose time has finally arrived. The growing transparency in governance due to RTI Act will compel any authority to behave with responsibility..

41 41 Chapter 7: Resource Mobilisation & Financial management Resource mobilisation is becoming increasingly important in fiscal consolidation exercise. Beginning from 2005 a number of fiscal reform measures were introduced. The enactment of FRBM Act in August 2005 and introduction of VAT in July 2005 were important landmarks. It is to be seen whether resource mobilisation has gained strength in the post reform period or not. OTR as a proportion of GSDP is a measure of tax effort. The average OTR/GSDP during to , representing the pre reform period works out to be 1.58% and that for to works out to be 2.29%. it indicates higher tax effort in the post reform period. The following graph shows the time path of this ratio. Fig 7.1: Tax effort OTR/GSDP OTR/GSDP ONTR as a proportion of GSDP is also a measure of resource mobilisation. Its average value rose from 1.287% during to to 2.504% during to

42 42 Fig 7.2: Own non tax revenue ONTR/GSDP ONTR/GSDP Manipur Legislative Assembly passed the Motor Vehicle Taxation Amendment Bill 2011 which on becoming an Act is expected to fetch an annual revenue of Rs 12 crores to the State exchequer. The Manipur Motor Vehicles Taxation (Amendment) Bill 2011 passed by the state assembly has been approved by the Governor. It seeks to levy green 5% of the value of the vehicle on commercial and private vehicles that have passed the standard operational limit of 15 years and is considered a pollutant. 30 percent of the vehicles currently plying on the roads of Manipur are estimated to be over 15 years old. The income thus generated will be used in pollution control measures including greenery. For a vehicle in the range of Rs 3 lakh the tax amount would be calculated at the rate of 3 percent with 4 % tax to be levied against vehicle worth Rs 6 lakh whereas it would be 5 pc for vehicle purchased at Rs 10 lakhs,, 6 per cent for those priced up to Rs 15 lakhs, 7 per cent for those priced up to Rs 20 lakhs and 8 per cent for jeeps/cars that are priced above Rs 20 lakhs. Under the new Act, annual permit fees and taxes for commercial vehicles would be increased by 100 per cent. Similarly, annual tax and permit fee for goods carrier vehicles would be raised by 100 per cent. Unlike the earlier practice where people could choose registration

43 43 numbers of their vehicles without any fee, the new tax regime would charge certain amount for choosing registration number of one s like. Motor vehicle taxes are no longer paid annually. New vehicles pay tax for 15 years at the time of registration. The tax effort in this sector is measured by tax per vehicle. Using this measure the average tax per vehicle during to works out to be Rs which declined to Rs during to has been chosen as the dividing line as improved collection of taxes was a part of the reforms introduced in A majir revision on motor vehicle tax came in 2011 only. It improved dramatically after the introduction of Motor vehicles taxation Act It rose to Rs in and the average for to rose to Rs The tax collection under the new regime rose from Rs 4.44 crore in to Rs crore in Fig 7.3: Tax per vehicle Tax per vehicle Tax per vehicle The ST/GSDP ratio increased from 1.003% during to to 1.977% during to The following graph shows the increasing trend after the reforms in 2005 i.e. introduction of VAT.

44 44 Fig 7.4: Sales Tax ST/GSDPin % ST/GSDP Sales tax picked up after the introduction of VAT in 2005 as shown by the following graph Fig 7.5: Growth of Sales tax

45 Sales tax Sales tax ( crore) In the case of land revenue the measure chosen land revenue as a proportion of GSDP declined during the two sub periods. From 0.015% during t it declined to 0.012% during to Though the supply of land is inelastic, as the economy undergoes structural change as in the case of Manipur, sale and transfer of land occurred in large scale. This was not reflected in land revenue. This was not also reflected in revenue collected from stamp &registration fees which should accompany any such transaction. Stamp & registration fee as proportion of GSDP remained stagnant during the two sub periods falling marginally from to

46 46 Fig 7.6: Land revenue and Stamps & Registration LR/GSDP STRG/GSDP Other measures of buoyancy are as follows Table 7.1: Measures of buoyancy to to to Sales tax/vat 1.473* 2.252* 1.929* Land revenue * Stamp & registration fee * 0.88* Own tax revenue 1.19* 1.186* 1.522* Own non tax revenue * 1.827* Tax on vehicles 0.708* * Note: * significant at 5% The formula used is Log(y)=a +log(x). for tax on vehicles the base is number of motor vehicles and for others GSDP Though the elasticities for each of them is statistically significant over the entire period, sub period analysis shows certain differences. Sales tax/vat, stamp & registration fee, own tax revenue and non tax revenue have statistically significant elasticities in the post reform period. In the case of sales tax/vat there is a significant increase in elasticity in the post reform period. The findings support the earlier finding that resource mobilisation efforts became stronger in the post reform period.

47 47 However chow test for structural break for these relationships at did not suggest any structural break. Quite predictably the tax on vehicles- number of vehicles relationship showed a structural break at The sharp rise in fee collection was mainly due to the upward revision of registration fees. Table 7.2: Tax data Year ST LR STRG GSDP TV MV ONTR OTR Note: except for MV, all are in Rs. crore ST Sales tax STRG Stamp & registration fee LR Land revenue GSDP Gross State domestic product TV Tax on vehicles MV No. of registered motor vehicles ONTR Own non tax revenue 2000= OTR Own tax revenue Expenditure Management Aggregate expenditure rose from Rs 1381 cr in to Rs 7700 cr in registering an annual compound growth rate of 16.91%. the following table gives the CAGR of some expenditures during this period. Aggregate expenditure (AE),revenue expenditure (RE)and social service expenditure (SSE) have grown faster in the latter period. It has declined with capital expenditure (CE) and development capital expenditure (DEC)..

48 48 Table 7.3: Growth of expenditure AE RE CE DE DEC SSE Table 7.4: Some important expenditures RE RR SSE CE DE DEC AE RE revenue expenditure RR Revenue receipt in Rs crore SSE social service expenditure CE capital expenditure DE Developmental expenditure DEC development capital expenditure AE Aggregate expenditure

49 49 Aggregate expenditure as percentage of GSDP has gradually increased from 44% in to 74% in Aggregate expenditure has persistently exceeded revenue receipts. RE as percentage of AE declined from 82 to 72. The proportion of SSE remained fairly stable. The proportion of capital expenditure gradually grew from 18.1% to 27.92%. the proportion of MED in AE gradually fell and recovered. However the proportion of expenditure in education in aggregate expenditure gradually declined from 20.2 % to 11.3%. The proportion of DEC in AE also has risen from 10.57% to 22.27%. Table 7.5: Expenditure Management AE/GSDP AE/RR RE/AE SSE/AE CE/AE DE/AE MED/AE EDN/AE DEC/AE RE revenue expenditure RR Revenue receipt in percentage SSE social service expenditure CE capital expenditure GSDP Gross state domestic product DE Developmental expenditure AE Aggregate expenditure MED medical, health & family welfare expenditure EDN Education exp DEC development capital expenditure

50 50 Resource mobilisation through tax and non tax revenues is a challenging task as the state is a backward state by any indicator. There are no industries worth the name in the state. The tax administration is also notoriously weak. There is scope for substantial resource mobilisation when the existing rules are properly implemented. When these are not implemented or implemented by fits and start it creates additional problems. The case of the powers sector is a classic example. The absence of action from the electricity department encouraged consumers not to pay the user charges in time and after some time the accumulated amount became too large for prompt payment. The irregular power supply has become an excuse for defaulters and also led to the proliferation of dedicated power lines locally known as VIP connections everywhere. Similar is the case with water supply. While the consumers are unwilling to pay even a small monthly water charge to the Public Health & Engineering department, the breakdown of the water distribution system has led to the emergence of a market for water with the active participation of private operators. The public is yet to become fully aware of its role in resource mobilisation for development. The officers also are equally ill informed. Everyone wants to free ride. There is a gap in public awareness of what the public can do to enable the government carry out its various public activities.the government has failed to get the support of the public in lifting prohibition in the state. Tax on liquor used to be an important source of tax revenue till the early 90s when prohibition was imposed on public demand. Two things are clear. Prohibition has not stopped the illegal sale of liquor. Neighbouring states which are not dry states are no worse off because of the sale of liquor. On the one hand prohibition has not vanished the evils of drinking and on the other it has also deprived the state of a major source of revenue. A state as developed as Gujarat may afford to have prohibition because it has many other sources of revenue. Such moral posturing may not be worth its cost. The state has failed to initiate the debate on new calculation of costs and benefits. One item which can be taxed is the tambola locally known as housie. From being an effective means of resource mobilisation of local clubs it has graduated into a very lucrative past time. Now prizes worth several lakhs are common. It should be taxed. Another activity that is generating substantial income is the catering houses locally known as Eigyagi Chaksangs or Brahmin s kitchen. It has proliferated in the valley districts. This is different from the traditional catering houses. It can also be taxed. Other such activities are the coaching centres, gyms which have come up in the urban areas in a big way. The spurt of coaching centres indicates the mess in education system in the state. The government schools

51 51 have failed miserably in terms of performance of their students. This malaise is spreading in the higher education also.

52 52 Chapter 8: State Level Public Enterprises State Public sector units consist of state government companies and statutory corporation. The state PSUs are established to carry out activities of commercial nature while keeping in view the welfare of the people. In a backward state like Manipur PSUs should play a major role as a facilitator and enabler for every activity both public and private. With this perspective a number of state PSUs have been established over the years. Like other states state PSUs have failed to flourish. They have failed to generate resources for development and continued contributing an insignificant percentage of GSDP. In fact PSUs have unfortunately become synonymous with inefficiency. As on 31 March 2001 there were 15 government companies (13 working and 2 non working) and one working statutory corporation. 1. Manipur Industrial development Corporation Limited 2. Manipur Spinning Mills Corporation Limited 3. Manipur Handloom and Handicrafts development Corporation Limited 4. Manipur Agro-industries Corporation Limited 5. Manipur Plantation crops Corporation Limited 6. Manipur Tribal development Corporation Limited 7. Manipur Cycle Corporation Limited 8. Manipur Electronics Corporation Limited 9. Manipur Film development Corporation Limited 10. Manipur cement Corporation Limited 11. Manipur Food Industries Corporation Ltd 12. Manipur Police Housing Corporation ltd 13. Manipur State Drugs and Pharmaceuticals Ltd. 14. Manipur State Power corporation Ltd 15. Manipur Pulp & Allied products Ltd. Statutory Corporation 1. Manipur State Road Transport Corporation.

53 53 By 31 March 2001 the Govt, of Manipur had invested Rs crore and the amount of dividend declared/ interest received & credited to Govt. during the year was only Rs 2.1 lakh. However by 31st March 2012 the number of PSUs declined to 10 only (all companies including 3 non working ). The following table gives some details of these ten companies. Table 8.1: Particulars of Government companies as on 31 March 2012 Working Government Companies Sl.no. Sector & name of the Year of Paid up capital company incorporation ( Rs lakh) Finance 1 Manipur Industrial development Corporation Limited 2 Manipur Film development Corporation Limited Debt equity ratio :1 3 Manipur Tribal development Corporation Limited Infrastructure 4 Manipur Police Housing Corporation ltd Manufacturing 5 Manipur Food Industries Corporation Ltd 6 Manipur Electronics Corporation Limited Misc 7 Manipur Handloom and Handicrafts development Corporation Limited Non working Agriculture and allied 1 Manipur Agro-industries Corporation Limited 2 Manipur Plantation crops Corporation Limited Misc 3 Manipur Pulp & Allied products Ltd : :

54 54 None of them is listed in stock exchanges. During to the following four PSUs were liquidated despite demand for their products. The products of the companies could not compete with the products coming from other states in terms of price and quality. 1. Manipur Cycle Corporation Limited 2. Manipur cement Corporation Limited 3. Manipur Spinning Mills Corporation Limited 4. Manipur State Drugs and Pharmaceuticals Ltd. Manipur State Road Transport Corporation was also dissolved. Manipur state power development Corporation incorporated in 1997 was taken off from the register of companies in June Manipur Food Industries Corporation Ltd. which replaced Manipur Sugar Mills Ltd in 1987 was also dissolved in March 2003 after failing to be operational. The following pie charts show the changing sectoral investment of the government. The share of industry shrank significantly from 65% in 2005 to 9% in As the number of working companies fell the amount invested also fell. Fig.8.1 Composition of investment 2005 Development of economically weaker section 2% Electronics 7% Investment as on 31 March 2005 handloom & Handicrafts 26% Industry 65%

55 55 Fig. 8.2 Composition of investment 2012 Investment as on 31 March12 agriculture Finance Manufacturing Misc 30% 31% 9% 30% Table 8.2: Investment in working PSUs As on 31 march No. of working Investment in working PSUs (Rs. crore) Total (Rs.crore) PSUs Equity Loan Source: CAAG reports Most of the companies incurred substantive losses due to deficiencies in financial management, planning and inefficient running and lack of proper monitoring. The following